An uneven recovery
The latest economic forecast document released by the Conference Board of Canada suggests that the country’s recovery from the COVID-19 pandemic could be longer than expected.
In its latest Provincial Economic Outlook report, the board suggests that even with an economic picking up steam in the third quarter of this year, it may take at least another full year for the economy to return to its pre-pandemic output levels.
The board is forecasting a drop in GDP of more than 12 percent in the second quarter of 2020, and a drop of 8.2 percent for the entire year. Its forecast for 2021 is for growth of 6.7 percent.
“The impact of the virus on the economy will be with us for years,” said chief economist Pedro Antunes. “Every province in Canada has incurred the wrath of COVID-19 with sharply negative growth this year. While some provinces are faring better than others, every region of Canada has a long road ahead before fully returning to normal.”
Hitting the economy hard were the physical distancing measures—and business closures—brought into effect by the pandemic during March and April. The Conference Board suggested those disruptions had a “devastating” effect on the economy. Real GDP fell by 7.5 percent between February and March and by a further 12 percent from March to April.
How quickly the economy rebounds from the pandemic depends on a number of factors. For its forecast model, the Conference Board is making several key assumptions:
- physical distancing protocols will remain in effect, but there will be no national, economy-wide shut down due to the pandemic,
- a vaccine for the virus will be available to Canadians by June 2021,
- a vaccine will become available globally in the fall of 2021, meaning that industries such as air travel, accommodation, and arts and culture will continue to suffer, and
- international immigration levels will remain low through 2022.
The board is keeping an eye on activity south of the border especially.
The Conference Board forecasts that the American economy will recover in the third and fourth quarters of this year and expand at a pace of around 5 percent pace in 2021. This, however, assumes that the surge in COVID-19 cases in several states is brought under control. Canadian exporters will be hurt further if U.S. economic growth drops below current assumptions.
Impacts—and recovery periods—vary across provinces
Although every province in Canada has been hit hard by the pandemic, some have fared worse than others. Energy producers such as Alberta, Saskatchewan and Newfoundland and Labrador have been hit hard not only by the coronavirus, but also the collapse in world oil prices.
On the other hand, the Atlantic provinces have been less negatively impacted—generally due to their smaller populations. This enabled provinces such as Nova Scotia and New Brunswick to re-open factories and outlets sooner than other provinces.
The board suggests that Ontario and Quebec would have fared even worse this year were it not for the ability of employees in the financial sector and other business services industries to work remotely. The impact on household incomes has also been mitigated by government support programs that will help spur a recovery in retail spending over the second half of the year.
Ontario to rebound by the end of 2021
Ontario’s economy is expected to drop by 7.6 percent in 2020, followed by a gain of 7 percent through the end of next year.
The province’s poor performance this year is due in part to its having the second-highest number of COVID-19 cases the country. As a result, Ontario kept its restaurants, bars, and other outlets closed for far longer than other parts of the country. That trend has been reflected in the downturns in employment and other economic indicators.
Toronto remains a source of concern, as the high number of infections there forced the provincial government to keep many local businesses closed even after other regions of the province, such as Ottawa, were able to open up their bars, dine-in restaurants, and other outlets. Also, Toronto’s economy has been hurt by the decline in immigration due to border restrictions that were imposed in response to the pandemic. The city is the main destination for the majority of immigrants to Canada.
Significant provincial government support has helped to blunt, somewhat, the shock to the economy from the COVID-19 pandemic and avoid an even steeper decline in economic activity. Financial commitments from the provincial government could easily add up to more than 3.0 percent of Ontario’s GDP in 2020. Also, Toronto’s key financial services sector remains in good shape, as job losses in this industry have been minimal. The ability of its employees to work from home has been a huge benefit for this sector. Still, the province’s labour market is not forecast to return to its pre-pandemic state until the end of 2021.